##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-50552
 Asset Acceptance Capital Corp.
 Exact name of registrant as specified in its charter
 Delaware
    
    80-0076779(State or other jurisdiction of
    
    (I.R.S.Employer Identification No.)incorporation or organization)
 28405 Van Dyke Avenue
Warren, Michigan 48093  Address of principal executive offices
 Registrants telephone number, including area code:
(586) 939-9600
  þ o
  o þ o
  o þ




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##### 



ASSET ACCEPTANCE CAPITAL CORP.
 Quarterly Report on Form 10-Q
 TABLE OF CONTENTS
 PagePART I  Financial InformationItem 1.
    
    Consolidated Financial Statements (unaudited)
    
    
    3Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4.
    
    Controls and Procedures
    
    
    28PART II  Other InformationItem 1.
    
    Legal Proceedings
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 6.
    
    Exhibits
    
    
    29Signatures
    
    
    30Exhibits:
    
    10.1 Joinder Agreement, Dated August 14, 2006 by and among Asset Acceptance, LLC,
Consumer Credit, LLC, Rx Acquisitions, LLC, Premium Asset Recovery
Corporation and JPMorgan Chase Bank, N.A.31.1 Rule 13a-14(a) Certification of Chief Executive Officer31.2 Rule 13a-14(a) Certification of Chief Financial Officer32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
  Quarterly Report on Form 10-Q
 www.assetacceptance.com
 2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1 . Consolidated Financial Statements
 ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Financial Position
(Unaudited)
 September 30, 2006
    
    
    December 31, 2005ASSETSCash and cash equivalents
    
    $
    32,731,143
    
    
    $
    50,518,934Investments
    
    
    14,935,010
    
    
    
    Purchased receivables, net
    
    
    259,425,087
    
    
    
    248,990,772Property and equipment, net
    
    
    13,373,050
    
    
    
    10,747,627Goodwill
    
    
    14,323,071
    
    
    
    6,339,574Other assets
    
    
    8,656,186
    
    
    
    7,344,948Total assets
    
    $
    343,443,547
    
    
    $
    323,941,855LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deferred tax liability, net
    
    $
    58,824,545
    
    
    $
    58,583,604Accounts payable and other liabilities
    
    
    17,825,889
    
    
    
    14,639,774Income taxes payable
    
    
    36,006
    
    
    
    1,071,179Capital lease obligations
    
    
    106,374
    
    
    
    186,944Total liabilities
    
    
    76,792,814
    
    
    
    74,481,501Stockholders equity:Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 100,000,000 shares
authorized; issued and outstanding shares 37,225,275
at September 30, 2006 and December 31, 2005
    
    
    372,253
    
    
    
    372,253Additional paid in capital
    
    
    161,733,695
    
    
    
    160,361,599Retained earnings
    
    
    124,436,261
    
    
    
    88,726,502Common stock in treasury; at cost, 1,313,145 shares at
September 30, 2006
    
    
    (19,891,476
    )
    
    
    Total stockholders equity
    
    
    266,650,733
    
    
    
    249,460,354Total liabilities and stockholders equity
    
    $
    343,443,547
    
    
    $
    323,941,855
  3




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##### Table of Contents



ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Income
(Unaudited)
 Three months ended September 30,
    
    
    Nine months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005RevenuesPurchased receivable revenues, net
    
    $
    59,691,484
    
    
    $
    63,899,194
    
    
    $
    190,899,586
    
    
    $
    198,466,124Gain (loss) on sale of purchased
receivables
    
    
    400,323
    
    
    
    (151
    )
    
    
    2,726,658
    
    
    
    (25,982
    )Other revenues, net
    
    
    (921,662
    )
    
    
    117,503
    
    
    
    (293,922
    )
    
    
    414,207Total revenues
    
    
    59,170,145
    
    
    
    64,016,546
    
    
    
    193,332,322
    
    
    
    198,854,349ExpensesSalaries and benefits
    
    
    19,357,233
    
    
    
    19,574,631
    
    
    
    63,241,247
    
    
    
    57,188,114Collections expense
    
    
    19,381,522
    
    
    
    17,831,613
    
    
    
    58,572,652
    
    
    
    55,119,103Occupancy
    
    
    2,288,531
    
    
    
    2,087,299
    
    
    
    6,718,019
    
    
    
    6,229,148Administrative
    
    
    778,363
    
    
    
    1,885,207
    
    
    
    6,094,553
    
    
    
    5,487,853Depreciation and amortization
    
    
    1,115,587
    
    
    
    831,396
    
    
    
    3,061,371
    
    
    
    2,517,506Loss on disposal of equipment
    
    
    1,131
    
    
    
    14,862
    
    
    
    6,653
    
    
    
    15,340Total operating expenses
    
    
    42,922,367
    
    
    
    42,225,008
    
    
    
    137,694,495
    
    
    
    126,557,064Income from operations
    
    
    16,247,778
    
    
    
    21,791,538
    
    
    
    55,637,827
    
    
    
    72,297,285Other income (expense)Interest income
    
    
    614,687
    
    
    
    430,407
    
    
    
    1,818,868
    
    
    
    657,941Interest expense
    
    
    (108,627
    )
    
    
    (135,282
    )
    
    
    (477,733
    )
    
    
    (416,954
    )Other
    
    
    168,162
    
    
    
    4,378
    
    
    
    (17,392
    )
    
    
    (2,984
    )Income before income taxes
    
    
    16,922,000
    
    
    
    22,091,041
    
    
    
    56,961,570
    
    
    
    72,535,288Income taxes
    
    
    6,221,182
    
    
    
    8,384,460
    
    
    
    21,251,811
    
    
    
    27,366,133Net income
    
    $
    10,700,818
    
    
    $
    13,706,581
    
    
    $
    35,709,759
    
    
    $
    45,169,155Weighted average number of shares:Basic
    
    
    36,858,417
    
    
    
    37,225,275
    
    
    
    37,094,454
    
    
    
    37,225,275Diluted
    
    
    36,891,693
    
    
    
    37,305,950
    
    
    
    37,125,710
    
    
    
    37,271,255Earnings per common share
outstanding:Basic
    
    $
    0.29
    
    
    $
    0.37
    
    
    $
    0.96
    
    
    $
    1.21Diluted
    
    $
    0.29
    
    
    $
    0.37
    
    
    $
    0.96
    
    
    $
    1.21
  4




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ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Cash Flows
(Unaudited)
 Nine months ended September 30,2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    35,709,759
    
    
    $
    45,169,155Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    3,061,371
    
    
    
    2,517,506Deferred income taxes
    
    
    (1,670,943
    )
    
    
    19,036,201Share-based compensation expense
    
    
    1,313,746
    
    
    
    688,110Net impairment of purchased receivables
    
    
    14,431,200
    
    
    
    6,994,000Non-cash revenue
    
    
    (1,042,846
    )
    
    
    (3,612,261
    )Loss on disposal of equipment
    
    
    6,653
    
    
    
    15,340(Gain) loss on sale of purchased receivables
    
    
    (2,726,658
    )
    
    
    25,982Changes in assets and liabilities, net of effects from
purchase of PARC:Increase (decrease) in accounts payable and other liabilities
    
    
    2,310,283
    
    
    
    (500,059
    )Decrease in other assets
    
    
    3,411,654
    
    
    
    664,906Increase (decrease) in income taxes payable
    
    
    (869,382
    )
    
    
    3,201,737Net cash provided by operating activities
    
    
    53,934,837
    
    
    
    74,200,617Cash flows from investing activitiesProceeds from (repurchase of) the sale of purchased receivables
    
    
    3,143,882
    
    
    
    (29,776
    )Investment in purchased receivables, net of buybacks
    
    
    (71,572,821
    )
    
    
    (75,681,304
    )Principal collected on purchased receivables
    
    
    55,626,691
    
    
    
    41,571,996Purchase of investment securities
    
    
    (14,935,010
    )
    
    
    Payment for purchase of PARC, net of cash acquired
    
    
    (14,675,912
    )
    
    
    Purchase of property and equipment
    
    
    (5,114,932
    )
    
    
    (1,892,577
    )Proceeds from the sale of property and equipment
    
    
    157,347
    
    
    
    Net cash used in investing activities
    
    
    (47,370,755
    )
    
    
    (36,031,661
    )Cash flows from financing activitiesBorrowings under line of credit
    
    
    
    
    
    
    10,500,000Repayment of line of credit
    
    
    
    
    
    
    (10,500,000
    )Repayment of capital lease obligations
    
    
    (105,367
    )
    
    
    (120,497
    )Repayment of bank and other secured debt assumed from PARC
    
    
    (4,413,380
    )
    
    
    Purchase of treasury shares
    
    
    (20,116,476
    )
    
    
    Proceeds received for treasury shares
    
    
    283,350
    
    
    
    Net cash used in financing activities
    
    
    (24,351,873
    )
    
    
    (120,497
    )Net increase (decrease) in cash and cash equivalents
    
    
    (17,787,791
    )
    
    
    38,048,459Cash and cash equivalents at beginning of period
    
    
    50,518,934
    
    
    
    14,204,579Cash and cash equivalents at end of period
    
    $
    32,731,143
    
    
    $
    52,253,038Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    227,678
    
    
    $
    256,985Cash paid for income taxes
    
    $
    23,780,241
    
    
    $
    4,984,181Non-cash investing and financing activities:Capital lease obligations incurred
    
    $
    24,797
    
    
    $
    93,483Assumption of liabilities in conjunction with purchase of PARC:Fair value of assets acquired less cash acquired
    
    $
    20,311,217
    
    
    $
    Cash paid for capital stock less cash acquired
    
    
    (14,675,912
    )
    
    
    Net liabilities assumed
    
    $
    5,635,305
    
    
    $
    
  5




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##### Table of Contents



ASSET ACCEPTANCE CAPITAL CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Summary of Significant Accounting Policies
 Nature of Operations
    Reporting Entity
  Cash and Cash Equivalents
  Investments
  6




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Purchased Receivables Portfolios and Revenue Recognition
     7




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Three months ended September 30,
    
    
    Nine months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Beginning balance
    
    $
    253,600,100
    
    
    $
    233,953,247
    
    
    $
    248,990,772
    
    
    $
    216,479,676Investment in purchased
receivables, net of buybacks
    
    
    27,041,314
    
    
    
    27,517,945
    
    
    
    71,572,821
    
    
    
    75,681,304Investment in purchased
receivables acquired from
PARC on April 28, 2006 (1)
    
    
    
    
    
    
    
    
    
    
    8,293,763
    
    
    
    Cost of sale of purchased
receivables, net of returns
    
    
    6,980
    
    
    
    16
    
    
    
    (417,224
    )
    
    
    3,794Cash collections
    
    
    (80,914,791
    )
    
    
    (78,159,364
    )
    
    
    (259,914,631
    )
    
    
    (243,419,860
    )Purchased receivable revenues
    
    
    59,691,484
    
    
    
    63,899,194
    
    
    
    190,899,586
    
    
    
    198,466,124Ending balance
    
    $
    259,425,087
    
    
    $
    247,211,038
    
    
    $
    259,425,087
    
    
    $
    247,211,038
 
 (1)
    
    Preliminary valuation pending the completed valuation study.  Three months ended September 30,
    
    
    Nine months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Beginning balance
    
    $
    893,894,752
    
    
    $
    845,668,596
    
    
    $
    848,545,458
    
    
    $
    792,755,605Revenue recognized on purchased receivables
    
    
    (59,691,484
    )
    
    
    (63,899,194
    )
    
    
    (190,899,586
    )
    
    
    (198,466,124
    )Additions due to purchases during the period
    
    
    53,405,147
    
    
    
    70,411,085
    
    
    
    165,442,854
    
    
    
    176,856,717Reclassifications from nonaccretable yield
    
    
    (7,721,665
    )
    
    
    9,651,864
    
    
    
    56,798,024
    
    
    
    90,686,153Ending balance (1)
    
    $
    879,886,750
    
    
    $
    861,832,351
    
    
    $
    879,886,750
    
    
    $
    861,832,351(1) 
Accretable yields are a function of estimated remaining cash flows and are based on
historical cash collections. Please refer to Forward-Looking Statements on page 15 and
Critical Accounting Policies on page 27 for further information regarding these estimates.Cash collections for the three months and nine months ended September 30, 2006 and 2005
include collections from fully amortized pools of which 100% of the collections were reported as
revenue. Components of revenue from fully amortized pools were as follows:Three months ended September 30,
    
    
    Nine months ended September 30,Revenue from fully amortized pools:
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Pools that amortized before 60 months
    
    $
    6,624,934
    
    
    $
    8,312,947
    
    
    $
    20,318,786
    
    
    $
    22,779,854Pools that are 60 months or older
    
    
    8,064,652
    
    
    
    4,543,583
    
    
    
    25,796,762
    
    
    
    15,044,442Pools under full cost recovery
    
    
    1,139,683
    
    
    
    1,135,232
    
    
    
    3,616,616
    
    
    
    3,254,546Total revenue from fully amortized pools
    
    $
    15,829,269
    
    
    $
    13,991,762
    
    
    $
    49,732,164
    
    
    $
    41,078,842
 8




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##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Beginning balance
    
    $
    30,407,355
    
    
    $
    2,398,000
    
    
    $
    22,285,355
    
    
    $
    Impairments
    
    
    6,867,300
    
    
    
    5,112,000
    
    
    
    17,062,300
    
    
    
    7,510,000Reversal of impairments (1)
    
    
    (587,600
    )
    
    
    (516,000
    )
    
    
    (2,631,100
    )
    
    
    (516,000
    )Deductions (2)
    
    
    (46,100
    )
    
    
    
    
    
    
    (75,600
    )
    
    
    Ending balance
    
    $
    36,640,955
    
    
    $
    6,994,000
    
    
    $
    36,640,955
    
    
    $
    6,994,000
 
 (1)
    
    Impairment reversals for the three and nine months ended September 30, 2006 and 2005 relate
to impairment charges recognized during the fiscal year ended December 31, 2005 and first
quarter of 2006.(2)
    
    Deductions represent impairments on fully amortized purchased receivable portfolios that were
written-off and cannot be reversed. Collections from Third Parties
  Earnings Per Share
  Recently Issued Accounting Pronouncements
 SFAS Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of
FASB Statement No. 109
  Reclassifications
  9




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##### Table of Contents



2. Line of Credit
  
    
    funds borrowed can be used to purchase portfolios of charged-off receivables and for
general corporate purposes;
    
    leverage ratio (as defined in the Credit Agreement) cannot exceed 1.5 to 1.0;
    
    debt to total capitalization ratio (as defined in the Credit Agreement) cannot exceed 1.25 to 1.0; and
    
    tangible net worth must exceed $145.0 million plus 50% of net income after September
30, 2004 which required a balance of $194.8 million as of September 30, 2006.
   3. Property and Equipment
  September 30, 2006
    
    
    December 31, 2005Computers and software
    
    $
    12,451,460
    
    
    $
    8,984,055Furniture and fixtures
    
    
    10,026,120
    
    
    
    9,158,973Leasehold improvements
    
    
    2,036,415
    
    
    
    2,017,496Equipment under capital lease
    
    
    401,288
    
    
    
    485,299Automobiles
    
    
    47,404
    
    
    
    136,525Total property and equipment, cost
    
    
    24,962,687
    
    
    
    20,782,348Less accumulated depreciation
    
    
    (11,589,637
    )
    
    
    (10,034,721
    )Net property and equipment
    
    $
    13,373,050
    
    
    $
    10,747,627
 4. Acquisition of PARC
  10




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##### Table of Contents



Assets acquired:Cash
    
    $
    1,568,688Investments in purchased receivables
    
    
    8,293,763Non-compete agreements
    
    
    1,400,000Customer relationships and contracts
    
    
    830,000Trademark and trade name
    
    
    1,980,000Other assets
    
    
    1,223,957Goodwill
    
    
    7,983,497Liabilities assumed:Bank and other secured debt
    
    
    (4,413,380
    )Other liabilities
    
    
    (2,621,925
    )Total purchase price including acquisition costs
    
    
    16,244,600Less: cash acquired
    
    
    (1,568,688
    )Total cash paid for capital stock, less cash acquired
    
    $
    14,675,912
   5. Intangible Assets Related to PARC Acquisition
  6. Share-Based Compensation
    11




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Nine
months
    
    Twelve monthsended September 30,
    
    ended December 31,Options issue year:
    
    2006
    
    2005Expected volatility
    
    
    46.00%
    
    
    
    46.00%Expected dividends
    
    
    0.00%
    
    
    
    0.00%Expected term
    
    5 Years
    
    5 YearsRisk-free rate
    
    
    4.55%-5.02
    %
    
    
    3.82%-4.39
    %
 Stock Options
  Weighted-AverageOptions
    
    
    Weighted-Average
    
    
    Remaining
    
    
    Aggregate IntrinsicOutstanding
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueJanuary 1, 2006
    
    
    251,049
    
    
    $
    19.37Granted
    
    
    112,474
    
    
    
    18.08Exercised
    
    
    (15,000
    )
    
    
    18.89Forfeited or expired
    
    
    (25,000
    )
    
    
    18.89Outstanding at September 30, 2006
    
    
    323,523
    
    
    
    18.98
    
    
    
    8.65
    
    
    $
    83,468Exercisable at September 30, 2006
    
    
    271,023
    
    
    $
    19.11
    
    
    
    8.53
    
    
    $
    58,668
    Restricted Shares
  12




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7. Litigation Contingencies
  8. Income Taxes
  9. Purchase Concentrations
  13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Company Overview
         14




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##### Table of Contents



Forward-Looking Statements
   
    
    our ability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts;
    
    our ability to recover sufficient amounts on our charged-off receivable portfolios;
    
    our ability to hire and retain qualified personnel;
    
    a decrease in collections if bankruptcy filings increase or if bankruptcy laws or other
debt collection laws change;
    
    our ability to make reasonable estimates of the timing and amount of future cash
receipts for purposes of recording purchased receivable revenues in accordance with
Accounting Standards Executive Committee Statement of Position 03-3 as well as the
Accounting Standards Executive Committee Practice Bulletin 6;
    
    changes in, or failure to comply with, governmental regulations, including our ability
to maintain compliance with Section 404 of the Sarbanes-Oxley Act and the costs related to
compliance;
    
    our ability to successfully integrate PARC into our business operations;
    
    our ability to acquire and to collect on charged-off receivable portfolios in industries
in which we have little or no experience;
    
    our ability to maintain existing, and secure additional financing on acceptable terms;
    
    the loss of any of our executive officers or other key personnel;
    
    the costs, uncertainties and other effects of legal and administrative proceedings;
    
    our ability to successfully expand our businesses and train and integrate new account representatives;
    
    the temporary or permanent loss of our computer or telecommunications systems, as well
as our ability to respond to changes in technology and increased competition;
    
    changes in our overall performance based upon significant macroeconomic conditions; and
    
    other unanticipated events and conditions that may hinder our ability to compete.
 15




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##### Table of Contents



Results of Operations
  Percent of Total Revenues
    
    
    
    Percent of Cash CollectionsThree Months Ended
    
    
    Nine Months Ended
    
    
    
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005RevenuesPurchased receivable revenues
    
    
    100.9
    %
    
    
    99.8
    %
    
    
    98.7
    %
    
    
    99.8
    %
    
    
    
    73.8
    %
    
    
    81.8
    %
    
    
    73.5
    %
    
    
    81.5
    %Gain (loss) on sales of
purchased receivables
    
    
    0.7
    
    
    
    0.0
    
    
    
    1.4
    
    
    
    (0.0
    )
    
    
    
    0.5
    
    
    
    0.0
    
    
    
    1.0
    
    
    
    (0.0
    )Other revenues
    
    
    (1.6
    )
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    
    (1.2
    )
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    0.2Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    
    73.1
    
    
    
    81.9
    
    
    
    74.4
    
    
    
    81.7ExpensesSalaries and benefits
    
    
    32.7
    
    
    
    30.6
    
    
    
    32.7
    
    
    
    28.8
    
    
    
    
    23.9
    
    
    
    25.0
    
    
    
    24.3
    
    
    
    23.5Collections expense
    
    
    32.7
    
    
    
    27.9
    
    
    
    30.3
    
    
    
    27.7
    
    
    
    
    23.9
    
    
    
    22.8
    
    
    
    22.5
    
    
    
    22.6Occupancy
    
    
    3.9
    
    
    
    3.3
    
    
    
    3.5
    
    
    
    3.1
    
    
    
    
    2.8
    
    
    
    2.7
    
    
    
    2.6
    
    
    
    2.6Administrative
    
    
    1.3
    
    
    
    2.9
    
    
    
    3.1
    
    
    
    2.7
    
    
    
    
    1.0
    
    
    
    2.4
    
    
    
    2.4
    
    
    
    2.3Depreciation and amortization
    
    
    1.9
    
    
    
    1.3
    
    
    
    1.6
    
    
    
    1.3
    
    
    
    
    1.4
    
    
    
    1.1
    
    
    
    1.2
    
    
    
    1.0Loss on disposal of equipment
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Total operating expenses
    
    
    72.5
    
    
    
    66.0
    
    
    
    71.2
    
    
    
    63.6
    
    
    
    
    53.0
    
    
    
    54.0
    
    
    
    53.0
    
    
    
    52.0Income from operations
    
    
    27.5
    
    
    
    34.0
    
    
    
    28.8
    
    
    
    36.4
    
    
    
    
    20.1
    
    
    
    27.9
    
    
    
    21.4
    
    
    
    29.7Other income (expense)Interest income
    
    
    1.0
    
    
    
    0.7
    
    
    
    0.9
    
    
    
    0.3
    
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    0.7
    
    
    
    0.3Interest expense
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.2
    )Other
    
    
    0.3
    
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    (0.0
    )
    
    
    
    0.2
    
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    (0.0
    )Income before income taxes
    
    
    28.6
    
    
    
    34.5
    
    
    
    29.5
    
    
    
    36.5
    
    
    
    
    20.9
    
    
    
    28.2
    
    
    
    21.9
    
    
    
    29.8Income taxes
    
    
    10.5
    
    
    
    13.1
    
    
    
    11.0
    
    
    
    13.8
    
    
    
    
    7.7
    
    
    
    10.7
    
    
    
    8.2
    
    
    
    11.2Net Income
    
    
    18.1
    %
    
    
    21.4
    %
    
    
    18.5
    %
    
    
    22.7
    %
    
    
    
    13.2
    %
    
    
    17.5
    %
    
    
    13.7
    %
    
    
    18.6
    %
 Three Months Ended September 30, 2006 Compared To Three Months Ended September 30, 2005
 Revenue
   16




---



##### Table of Contents



Operating Expenses
  Salaries and Benefits.
 Collections Expense.
 Occupancy.
 Administrative.
 Depreciation and Amortization.
 Interest Income.
 Interest Expense.
 Income Taxes.
 17




---



##### Table of Contents



Nine Months Ended September 30, 2006 Compared To Nine Months Ended September 30, 2005
 Revenue
   Operating Expenses
  Salaries and Benefits.
 18




---



##### Table of Contents



Collections Expense.
 Occupancy.
 Administrative.
 Depreciation and Amortization.
 Interest Income.
 Interest Expense.
 Income Taxes.
 19




---



##### Table of Contents



Supplemental Performance Data
 Portfolio Performance
  Total EstimatedCash Collections
    
    
    Estimated
    
    
    Total
    
    
    Collections as aNumber of
    
    
    Purchase
    
    
    Including Cash
    
    
    Remaining
    
    
    Estimated
    
    
    Percentage ofPurchase Period
    
    Portfolios
    
    
    Price (1)
    
    
    Sales (2)
    
    
    Collections(3)
    
    
    Collections
    
    
    Purchase Price (2)(dollars in thousands)1995
    
    
    53
    
    
    $
    1,518
    
    
    $
    8,003
    
    
    $
    
    
    
    $
    8,003
    
    
    
    527
    %1996
    
    
    46
    
    
    
    3,844
    
    
    
    17,596
    
    
    
    19
    
    
    
    17,615
    
    
    
    4581997
    
    
    45
    
    
    
    4,345
    
    
    
    29,082
    
    
    
    615
    
    
    
    29,697
    
    
    
    6831998
    
    
    61
    
    
    
    16,411
    
    
    
    80,505
    
    
    
    4,591
    
    
    
    85,096
    
    
    
    5191999
    
    
    51
    
    
    
    12,925
    
    
    
    59,026
    
    
    
    6,433
    
    
    
    65,459
    
    
    
    5062000
    
    
    49
    
    
    
    20,593
    
    
    
    115,360
    
    
    
    20,420
    
    
    
    135,780
    
    
    
    6592001
    
    
    62
    
    
    
    43,127
    
    
    
    229,413
    
    
    
    58,363
    
    
    
    287,776
    
    
    
    6672002
    
    
    94
    
    
    
    72,262
    
    
    
    276,561
    
    
    
    123,044
    
    
    
    399,605
    
    
    
    5532003
    
    
    76
    
    
    
    87,160
    
    
    
    287,704
    
    
    
    226,937
    
    
    
    514,641
    
    
    
    5902004
    
    
    106
    
    
    
    86,686
    
    
    
    140,810
    
    
    
    230,334
    
    
    
    371,144
    
    
    
    4282005
    
    
    104
    
    
    
    100,885
    
    
    
    70,008
    
    
    
    230,562
    
    
    
    300,570
    
    
    
    2982006 (4, 5)
    
    
    123
    
    
    
    81,688
    
    
    
    18,768
    
    
    
    237,994
    
    
    
    256,762
    
    
    
    314Total
    
    
    870
    
    
    $
    531,444
    
    
    $
    1,332,836
    
    
    $
    1,139,312
    
    
    $
    2,472,148
    
    
    
    465
    %
 
 (1)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less the
purchase price refunded by a seller due to the return of non-compliant accounts (also defined
as buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser.(2)
    
    For purposes of this table, cash collections include selected cash sales, which were entered
into subsequent to purchase. Cash sales, however, exclude the sales of portfolios, which
occurred at the time of purchase.(3)
    
    Estimated remaining collections are based on historical cash collections. Please refer to
Forward-Looking Statements on page 15 and Critical Accounting policies on page 27 for further
information regarding these estimates.(4)
    
    Includes only nine months of activity through September 30, 2006.(5)
    
    Includes 62 portfolios from the acquisition of PARC on April 28, 2006 that were preliminarily
allocated a purchase price value of $8.3 million.  Unamortized
    
    
    UnamortizedUnamortized
    
    
    
    
    
    
    Balance as a
    
    
    Balance as aBalance as of
    
    
    Purchase
    
    
    Percentage of
    
    
    Percentage ofPurchase Period
    
    September 30, 2006
    
    
    Price (1)
    
    
    Purchase Price
    
    
    Total(dollars in thousands)2000
    
    $
    33
    
    
    $
    20,593
    
    
    
    0.2
    %
    
    
    0.0
    %2001
    
    
    796
    
    
    
    43,127
    
    
    
    1.8
    
    
    
    0.32002
    
    
    15,377
    
    
    
    72,262
    
    
    
    21.3
    
    
    
    5.92003
    
    
    32,506
    
    
    
    87,160
    
    
    
    37.3
    
    
    
    12.52004
    
    
    53,563
    
    
    
    86,686
    
    
    
    61.8
    
    
    
    20.72005
    
    
    81,692
    
    
    
    100,885
    
    
    
    81.0
    
    
    
    31.52006 (2)
    
    
    75,458
    
    
    
    85,576
    
    
    
    88.2
    
    
    
    29.1Total
    
    $
    259,425
    
    
    $
    496,289
    
    
    
    52.3
    %
    
    
    100.0
    %
 
 (1)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase
price refunded by a seller due to the return of non-compliant accounts (also defined as
buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser.(2)
    
    Includes only nine months of activity through September 30, 2006. 20




---



##### Table of Contents



Account Representative Productivity and Turnover
  Account Representatives by Experience (1)
 Three months ended
    
    Nine months ended
    
    Year endedSeptember 30,
    
    September 30,
    
    December 31,Number of account representatives:
    
    2006
    
    2005
    
    2006
    
    2005
    
    2005
    
    2004One year or more (2)
    
    
    570
    
    
    
    509
    
    
    
    568
    
    
    
    510
    
    
    
    510
    
    
    
    471Less than one year (3)
    
    
    366
    
    
    
    558
    
    
    
    437
    
    
    
    530
    
    
    
    540
    
    
    
    437Total account representatives
    
    
    936
    
    
    
    1,067
    
    
    
    1,005
    
    
    
    1,040
    
    
    
    1,050
    
    
    
    908
 
 (1)
    
    This excludes Full Time Equivalent (FTE) account representatives from PARC from the
date of acquisition through September 30, 2006.(2)
    
    Based on number of average traditional call center FTE account representatives with one
or more years of service.(3)
    
    Based on number of average traditional call center FTE account representatives with less
than one year of service, including new employees in training. Collection Averages by Experience (1)
 Three months ended
    
    Nine months ended
    
    Year endedSeptember 30,
    
    September 30,
    
    December 31,Collection averages:
    
    2006
    
    2005
    
    2006
    
    2005
    
    2005
    
    2004One year or more (2)
    
    $
    44,576
    
    
    $
    46,519
    
    
    $
    146,452
    
    
    $
    154,073
    
    
    $
    199,734
    
    
    $
    195,426Less than one year (3)
    
    
    27,988
    
    
    
    27,264
    
    
    
    92,202
    
    
    
    92,589
    
    
    
    117,859
    
    
    
    139,891Overall average
    
    
    38,082
    
    
    
    36,453
    
    
    
    122,854
    
    
    
    122,713
    
    
    
    157,661
    
    
    
    168,708
 
 (1)
    
    This excludes collections and FTE account representatives from PARC from the date of
acquisition through September 30, 2006.(2)
    
    Based on number of traditional call center FTE account representatives with one or more
years of service.(3)
    
    Based on number of traditional call center FTE account representatives with less than one
year of service, including employees in training.  Turnover by Experience (1)
 Three months ended
    
    Nine months ended
    
    Year endedSeptember 30,
    
    September 30,
    
    December 31,Account representatives turnover:
    
    2006
    
    2005
    
    2006
    
    2005
    
    2005
    
    2004One year or more (2)
    
    
    50.6
    %
    
    
    48.8
    %
    
    
    44.8
    %
    
    
    45.1
    %
    
    
    39.3
    %
    
    
    38.4
    %Less than one year (3)
    
    
    112.5
    
    
    
    146.0
    
    
    
    105.0
    
    
    
    126.5
    
    
    
    117.8
    
    
    
    103.3Overall turnover
    
    
    73.8
    
    
    
    97.9
    
    
    
    70.0
    
    
    
    85.7
    
    
    
    78.8
    
    
    
    69.0
 
 (1)
    
    This excludes FTE account representatives from PARC from the date of acquisition through
September 30, 2006.(2)
    
    Based on number of traditional call center FTE account representatives with one or more
years of service.(3)
    
    Based on number of traditional call center FTE account representatives with less than one
year of service, including new employees in training. 21




---



##### Table of Contents



Cash Collections
  Historical Collections (1)
 Nine MonthsEndedPurchase
    
    Purchase
    
    
    Year Ended December 31,
    
    
    September 30,Period
    
    Price(3)
    
    
    1995
    
    
    1996
    
    
    1997
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006(dollars in thousands)Pre-1995
    
    
    
    
    
    $
    4,303
    
    
    $
    3,218
    
    
    $
    2,290
    
    
    $
    1,481
    
    
    $
    1,106
    
    
    $
    912
    
    
    $
    695
    
    
    $
    478
    
    
    $
    511
    
    
    $
    369
    
    
    $
    375
    
    
    $
    2141995
    
    
    1,518
    
    
    
    388
    
    
    
    1,566
    
    
    
    1,659
    
    
    
    1,118
    
    
    
    786
    
    
    
    708
    
    
    
    472
    
    
    
    343
    
    
    
    278
    
    
    
    227
    
    
    
    212
    
    
    
    1291996
    
    
    3,844
    
    
    
    
    
    
    
    827
    
    
    
    3,764
    
    
    
    3,085
    
    
    
    2,601
    
    
    
    2,098
    
    
    
    1,440
    
    
    
    1,041
    
    
    
    816
    
    
    
    687
    
    
    
    683
    
    
    
    4001997
    
    
    4,345
    
    
    
    
    
    
    
    
    
    
    
    1,682
    
    
    
    4,919
    
    
    
    5,573
    
    
    
    5,017
    
    
    
    3,563
    
    
    
    2,681
    
    
    
    1,785
    
    
    
    1,526
    
    
    
    1,342
    
    
    
    8851998
    
    
    16,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,835
    
    
    
    15,220
    
    
    
    15,045
    
    
    
    12,962
    
    
    
    11,021
    
    
    
    7,987
    
    
    
    5,582
    
    
    
    4,653
    
    
    
    2,6211999
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,761
    
    
    
    11,331
    
    
    
    10,862
    
    
    
    9,750
    
    
    
    8,278
    
    
    
    6,675
    
    
    
    5,022
    
    
    
    3,0992000
    
    
    20,593
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    23,444
    
    
    
    22,559
    
    
    
    20,318
    
    
    
    17,196
    
    
    
    14,062
    
    
    
    8,4092001
    
    
    43,127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    50,327
    
    
    
    50,967
    
    
    
    45,713
    
    
    
    39,865
    
    
    
    23,8382002
    
    
    72,262
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,340
    
    
    
    70,813
    
    
    
    72,024
    
    
    
    67,649
    
    
    
    43,2382003
    
    
    87,160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    94,564
    
    
    
    94,234
    
    
    
    62,6732004
    
    
    86,686
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    68,354
    
    
    
    49,0912005
    
    
    100,885
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,459
    
    
    
    46,5492006 (2)
    
    
    81,688
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,769Total
    
    
    
    
    
    $
    4,691
    
    
    $
    5,611
    
    
    $
    9,395
    
    
    $
    15,438
    
    
    $
    29,047
    
    
    $
    44,006
    
    
    $
    71,068
    
    
    $
    120,540
    
    
    $
    197,820
    
    
    $
    267,928
    
    
    $
    319,910
    
    
    $
    259,915Cumulative Collections (1)TotalThroughPurchase
    
    Purchase
    
    
    Total Through December 31,
    
    
    September 30,Period
    
    Price(3)
    
    
    1995
    
    
    1996
    
    
    1997
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006(dollars in thousands)1995
    
    $
    1,518
    
    
    $
    388
    
    
    $
    1,954
    
    
    $
    3,613
    
    
    $
    4,731
    
    
    $
    5,517
    
    
    $
    6,225
    
    
    $
    6,697
    
    
    $
    7,040
    
    
    $
    7,318
    
    
    $
    7,545
    
    
    $
    7,757
    
    
    $
    7,8861996
    
    
    3,844
    
    
    
    
    
    
    
    827
    
    
    
    4,591
    
    
    
    7,676
    
    
    
    10,277
    
    
    
    12,375
    
    
    
    13,815
    
    
    
    14,856
    
    
    
    15,672
    
    
    
    16,359
    
    
    
    17,042
    
    
    
    17,4421997
    
    
    4,345
    
    
    
    
    
    
    
    
    
    
    
    1,682
    
    
    
    6,601
    
    
    
    12,174
    
    
    
    17,191
    
    
    
    20,754
    
    
    
    23,435
    
    
    
    25,220
    
    
    
    26,746
    
    
    
    28,088
    
    
    
    28,9731998
    
    
    16,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,835
    
    
    
    20,055
    
    
    
    35,100
    
    
    
    48,062
    
    
    
    59,083
    
    
    
    67,070
    
    
    
    72,652
    
    
    
    77,305
    
    
    
    79,9261999
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,761
    
    
    
    15,092
    
    
    
    25,954
    
    
    
    35,704
    
    
    
    43,982
    
    
    
    50,657
    
    
    
    55,679
    
    
    
    58,7782000
    
    
    20,593
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    32,339
    
    
    
    54,898
    
    
    
    75,216
    
    
    
    92,412
    
    
    
    106,474
    
    
    
    114,8832001
    
    
    43,127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    67,957
    
    
    
    118,924
    
    
    
    164,637
    
    
    
    204,502
    
    
    
    228,3402002
    
    
    72,262
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,340
    
    
    
    93,153
    
    
    
    165,177
    
    
    
    232,826
    
    
    
    276,0642003
    
    
    87,160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    130,631
    
    
    
    224,865
    
    
    
    287,5382004
    
    
    86,686
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    91,719
    
    
    
    140,8102005
    
    
    100,885
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,459
    
    
    
    70,0082006 (2)
    
    
    81,688
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,769Cumulative Collections as Percentage of Purchase Price (1)TotalThroughPurchase
    
    Purchase
    
    
    Total Through December 31,
    
    
    September 30,Period
    
    Price(3)
    
    
    1995
    
    
    1996
    
    
    1997
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    20061995
    
    $
    1,518
    
    
    
    26
    %
    
    
    129
    %
    
    
    238
    %
    
    
    312
    %
    
    
    363
    %
    
    
    410
    %
    
    
    441
    %
    
    
    464
    %
    
    
    482
    %
    
    
    497
    %
    
    
    511
    %
    
    
    519
    %1996
    
    
    3,844
    
    
    
    
    
    
    
    22
    
    
    
    119
    
    
    
    200
    
    
    
    267
    
    
    
    322
    
    
    
    359
    
    
    
    386
    
    
    
    408
    
    
    
    426
    
    
    
    443
    
    
    
    4541997
    
    
    4,345
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    152
    
    
    
    280
    
    
    
    396
    
    
    
    478
    
    
    
    539
    
    
    
    580
    
    
    
    616
    
    
    
    646
    
    
    
    6671998
    
    
    16,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    122
    
    
    
    214
    
    
    
    293
    
    
    
    360
    
    
    
    409
    
    
    
    443
    
    
    
    471
    
    
    
    4871999
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    117
    
    
    
    201
    
    
    
    276
    
    
    
    340
    
    
    
    392
    
    
    
    431
    
    
    
    4552000
    
    
    20,593
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    157
    
    
    
    267
    
    
    
    365
    
    
    
    449
    
    
    
    517
    
    
    
    5582001
    
    
    43,127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    158
    
    
    
    276
    
    
    
    382
    
    
    
    474
    
    
    
    5292002
    
    
    72,262
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    129
    
    
    
    229
    
    
    
    322
    
    
    
    3822003
    
    
    87,160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    150
    
    
    
    258
    
    
    
    3302004
    
    
    86,686
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    106
    
    
    
    1622005
    
    
    100,885
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    692006 (2)
    
    
    81,688
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
 
 (1)
    
    Does not include proceeds from sales of any receivables.(2)
    
    Includes $8.3 million of portfolios acquired from the acquisition of PARC on April 28, 2006.(3)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase
price refunded by a seller due to the return of non-compliant accounts (also referred to as
buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser. 22




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##### Table of Contents



Seasonality
   Quarterly Cash Collections
 Cash Collections
 Quarter
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006First
    
    $
    27,297,721
    
    
    $
    44,017,730
    
    
    $
    65,196,055
    
    
    $
    80,397,640
    
    
    $
    89,389,858Second
    
    
    30,475,078
    
    
    
    51,190,533
    
    
    
    67,566,031
    
    
    
    84,862,856
    
    
    
    89,609,982Third
    
    
    29,337,914
    
    
    
    48,622,829
    
    
    
    66,825,822
    
    
    
    78,159,364
    
    
    
    80,914,791Fourth
    
    
    33,429,419
    
    
    
    53,988,333
    
    
    
    68,339,797
    
    
    
    76,490,350
    
    
    
    Total cash collections
    
    $
    120,540,132
    
    
    $
    197,819,425
    
    
    $
    267,927,705
    
    
    $
    319,910,210
    
    
    $
    259,914,631
  Three months ended September 30,
    
    Nine months ended September 30,2006
    
    2005
    
    2006
    
    2005Traditional collections
    
    
    46.0
    %
    
    
    49.7
    %
    
    
    48.4
    %
    
    
    52.5
    %Legal collections
    
    
    41.6
    
    
    
    37.2
    
    
    
    39.2
    
    
    
    35.3Other collections
    
    
    12.4
    
    
    
    13.1
    
    
    
    12.4
    
    
    
    12.2Total cash collections
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  23




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##### Table of Contents



Face Value ofCharged-off
    
    
    
    
    
    
    No. ofAsset Type
    
    Receivables (2)(3)
    
    
    %
    
    
    Accounts (3)
    
    
    %(in thousands)Visa®/MasterCard®/Discover®
    
    $
    11,328,691
    
    
    
    45.8
    %
    
    
    4,817
    
    
    
    19.9
    %Private Label Credit Cards
    
    
    3,393,477
    
    
    
    13.7
    
    
    
    4,878
    
    
    
    20.2Telecommunications/Utility/Gas
    
    
    2,218,729
    
    
    
    9.0
    
    
    
    5,447
    
    
    
    22.5Health Club
    
    
    1,435,375
    
    
    
    5.8
    
    
    
    1,454
    
    
    
    6.0Auto Deficiency
    
    
    1,387,245
    
    
    
    5.6
    
    
    
    248
    
    
    
    1.0Wireless Telecommunications
    
    
    721,770
    
    
    
    2.9
    
    
    
    1,731
    
    
    
    7.2Installment Loans
    
    
    634,989
    
    
    
    2.6
    
    
    
    213
    
    
    
    0.9Other (1)
    
    
    3,604,729
    
    
    
    14.6
    
    
    
    5,403
    
    
    
    22.3Total
    
    $
    24,725,005
    
    
    
    100.0
    %
    
    
    24,191
    
    
    
    100.0
    %
 
 (1)
    
    Other includes charged-off receivables of several debt types, including student loan,
mobile home deficiency and retail mail order. This includes the purchase of a single portfolio
in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face
value) and consisting of approximately 3.8 million accounts.(2)
    
    Face value of charged-off receivables represents the cumulative amount of purchases net of
buybacks. The amount is not adjusted for payments received, settlements or additional accrued
interest on any accounts in such portfolios after the date we purchased the applicable
portfolio.(3)
    
    This excludes the face value of charged-off receivables and the number of accounts acquired
through PARC either from the acquisition of PARC on April 28, 2006 or from the purchases by
PARC from the date of acquisition through September 30, 2006.  
    
    Fresh accounts are typically 120 to 270 days past due, have been charged-off by the
credit originator and are either being sold prior to any post charge-off collection
activity or are placed with a third party collector for the first time. These accounts
typically sell for the highest purchase price.
    
    Primary accounts are typically 270 to 360 days past due, have been previously placed
with one third party collector and typically receive a lower purchase price.
    
    Secondary and tertiary accounts are typically more than 360 days past due, have been
placed with two or three third party collectors and receive even lower purchase prices.
   Face Value ofCharged-off
    
    
    
    
    
    
    No. ofAccount Type
    
    Receivables (2)(3)
    
    
    %
    
    
    Accounts (3)
    
    
    %(in thousands)Fresh
    
    $
    1,362,504
    
    
    
    5.5
    %
    
    
    776
    
    
    
    3.2
    %Primary
    
    
    3,942,894
    
    
    
    16.0
    
    
    
    3,096
    
    
    
    12.8Secondary
    
    
    4,326,443
    
    
    
    17.5
    
    
    
    4,806
    
    
    
    19.9Tertiary (1)
    
    
    13,557,323
    
    
    
    54.8
    
    
    
    14,657
    
    
    
    60.6Other
    
    
    1,535,841
    
    
    
    6.2
    
    
    
    856
    
    
    
    3.5Total
    
    $
    24,725,005
    
    
    
    100.0
    %
    
    
    24,191
    
    
    
    100.0
    %
 24




---



##### Table of Contents



(1)
    
    This includes the purchase of a single portfolio in June 2002 with a face value of $1.2
billion at a cost of $1.2 million (or 0.1% of face value) and consisting of approximately 3.8
million accounts.(2)
    
    Face value of charged-off receivables represents the cumulative amount of purchases net of
buybacks. The amount is not adjusted for payments received, settlements or additional accrued
interest on any accounts in such portfolios after the date we purchased the applicable
portfolio.(3)
    
    This excludes the face value of charged-off receivables and the number of accounts acquired
through PARC either from the acquisition of PARC on April 28, 2006 or from the purchases by
PARC from the date of acquisition through September 30, 2006.  Face Value ofCharged-off
    
    
    
    
    
    
    No. ofGeographic Location
    
    Receivables (3)(4)
    
    
    %
    
    
    Accounts (4)
    
    
    %(in thousands)Texas (1)
    
    $
    3,420,442
    
    
    
    13.8
    %
    
    
    2,905
    
    
    
    12.0
    %California
    
    
    2,822,172
    
    
    
    11.4
    
    
    
    3,002
    
    
    
    12.4Florida (1)
    
    
    2,518,334
    
    
    
    10.2
    
    
    
    1,689
    
    
    
    7.0Michigan (1)
    
    
    1,889,597
    
    
    
    7.6
    
    
    
    2,330
    
    
    
    9.6New York
    
    
    1,507,416
    
    
    
    6.1
    
    
    
    1,231
    
    
    
    5.1Ohio (1)
    
    
    1,301,578
    
    
    
    5.3
    
    
    
    1,486
    
    
    
    6.1Illinois (1)
    
    
    1,091,279
    
    
    
    4.4
    
    
    
    1,374
    
    
    
    5.7Pennsylvania
    
    
    754,720
    
    
    
    3.1
    
    
    
    633
    
    
    
    2.6North Carolina
    
    
    723,085
    
    
    
    2.9
    
    
    
    561
    
    
    
    2.3Georgia
    
    
    635,241
    
    
    
    2.6
    
    
    
    548
    
    
    
    2.3Other (2)
    
    
    8,061,141
    
    
    
    32.6
    
    
    
    8,432
    
    
    
    34.9Total
    
    $
    24,725,005
    
    
    
    100.0
    %
    
    
    24,191
    
    
    
    100.0
    %
 
 (1)
    
    Collection site located in this state.(2)
    
    Each state included in Other represents under 2.0% individually of the face value of total
charged-off consumer receivables.(3)
    
    Face value of charged-off receivables represents the cumulative amount of purchases net of
buybacks. The amount is not adjusted for payments received, settlements or additional accrued
interest on any accounts in such portfolios after the date we purchased the applicable
portfolio.(4)
    
    This excludes the face value of charged-off receivables and the number of accounts acquired
through PARC either from the acquisition of PARC on April 28, 2006 or from the purchases by
PARC from the date of acquisition through September 30, 2006. Liquidity and Capital Resources
  Stock Repurchase Program
  25




---



##### Table of Contents



Borrowings
  
    
    funds borrowed can be used to purchase portfolios of charged-off receivables and for
general corporate purposes;
    
    leverage ratio (as defined in the Credit Agreement) cannot exceed 1.5 to 1.0;
    
    debt to total capitalization ratio (as defined in the Credit Agreement) cannot exceed 1.25 to 1.0; and
    
    tangible net worth must exceed $145.0 million plus 50% of net income after September
30, 2004 which required a balance of $194.8 million as of September 30, 2006.
  In accordance with the Credit Agreement, we obtained approval from the lender prior to the
PARC acquisition.
 Cash Flows
      26




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##### Table of Contents



Future Contractual Cash Obligations
  Year Ending December 31,2006
    
    
    2007
    
    
    2008(2)
    
    
    2009
    
    
    2010
    
    
    ThereafterCapital lease obligations
    
    $
    27,638
    
    
    $
    63,802
    
    
    $
    18,634
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating lease obligations
    
    
    1,665,431
    
    
    
    6,609,432
    
    
    
    5,665,026
    
    
    
    4,834,186
    
    
    
    3,946,520
    
    
    
    18,103,876Purchased receivables (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Line of credit (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employment agreements
    
    
    203,750
    
    
    
    315,000
    
    
    
    315,000
    
    
    
    105,000
    
    
    
    
    
    
    
    Total
    
    $
    1,896,819
    
    
    $
    6,988,234
    
    
    $
    5,998,660
    
    
    $
    4,939,186
    
    
    $
    3,946,520
    
    
    $
    18,103,876
 
 (1)
    
    During the nine months ended September 30, 2006, we renewed one forward flow contract and
acquired two on-going forward flow contracts that commit us to purchase receivables for a
fixed percentage of the face amount of the receivables. The one renewed forward flow contract
expires in November 2006 and has estimated monthly purchases of approximately $200,000,
depending upon circumstances and the other two on-going forward flow contracts call for
monthly purchases of approximately $14,600 over the next twelve months.(2)
    
    To the extent that a balance is outstanding on our line of credit, it would be due in May
2008. There was no outstanding balance on our line of credit as of September 30, 2006. Off-Balance Sheet Arrangements
  Critical Accounting Policies
     27




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   28




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Average
    
    Total Number of
    
    Maximum Number ofTotal Number
    
    Price
    
    Shares Purchased as Part
    
    Shares that May Yetof Shares
    
    Paid per
    
    of Publicly Announced
    
    Be Purchased UnderPeriod
    
    Purchased
    
    Share
    
    Plans or Programs
    
    the Plans or ProgramsJuly
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    2,500,000August
    
    
    551,631
    
    
    $
    15.38
    
    
    
    551,631
    
    
    
    1,948,369September
    
    
    756,354
    
    
    $
    14.98
    
    
    
    756,354
    
    
    
    1,192,015Total
    
    
    1,307,985
    
    
    $
    15.15
    
    
    
    1,307,985
 
 Item 6. Exhibits
 ExhibitNumber
    
    Description10.1*
    
    Joinder Agreement, Dated August 14, 2006 by and among Asset Acceptance, LLC,
Consumer Credit, LLC, Rx Acquisitions, LLC, Premium Asset Recovery Corporation
and JPMorgan Chase Bank, N.A.31.1*
    
    Rule 13a-14(a) Certification of Chief Executive Officer31.2*
    
    Rule 13a-14(a) Certification of Chief Financial Officer32.1*
    
    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
 
 *
    
    Filed herewith 29




---



##### Table of Contents



SIGNATURES
  ASSET ACCEPTANCE CAPITAL CORP.Date: November 3, 2006
    By:
    /s/ Nathaniel F. Bradley IVNathaniel F. Bradley IVChairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)Date: November 3, 2006
    By:
    /s/ Mark A. RedmanMark A. RedmanVice President  Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer) 30




---



##### Table of Contents



ExhibitNumber
    
    Description10.1*
    
    Joinder Agreement, Dated August 14, 2006 by and among Asset Acceptance, LLC,
Consumer Credit, LLC, Rx Acquisitions, LLC, Premium Asset Recovery Corporation
and JPMorgan Chase Bank, N.A.31.1*
    
    Rule 13a-14(a) Certification of Chief Executive Officer31.2*
    
    Rule 13a-14(a) Certification of Chief Financial Officer32.1*
    
    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
 
 *
    
    Filed herewith